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GDP rebasing will not solve economic problems – Analysts

By on April 8, 2014

The National Bureau of Statistics has just changed the base year for calculating the nation’s Gross Domestic Product to 2010 from 1990.

This is meant to reflect changes in the economy of Nigeria, and more accurately assess the size of its current output.

According to Reuters, most governments overhaul the GDP calculations every few years to reflect changes in output and consumption.

Until Sunday, the Federal Government had not done so since 1990. This meant that sectors such as the Internet, telephones and even the “Nollywood” film industry were just newly factored in to give a truer picture.

When Ghana rebased in 2010, output jumped 60 per cent. For Nigeria being the continent’s number one economy could prove an irresistible magnet for investors.

“The impact of a rebasing would likely have a positive impact on perceptions … this would come at time when most investors are fairly downbeat on South Africa,” because of its high combined fiscal and current account deficit, London-based economist for CSL Stockbrokers, Alan Cameron, said, according to Reuters.

Nigeria has been growing as a destination for foreign investors owing to the size of its consumer market and increasingly sophisticated capital markets.

Analysts say higher GDP means more consumption per capita, boosting its allure.

“The globe is still looking at the next strong growth story outside China and India, and Africa is on their minds,” said the Chief Investment Officer at Gryphon Asset Management, which has investments in Nigeria, Abri Du Plessis.

“We are seeing good growth in the … Nigeria story,” he added.

The rebased version was expected to capture 46 new sectors from the previous 33, and boost the GDP significantly.

The GDP at the current basic prices stands at N40.5tn or $253bn as of December 2012.

The Head, Investment Research, Afrinvest, a research and advisory firm, Mr. Ayodeji Ebo, said the macroeconomic impact of the rebased GDP was expected to be mixed.

One of the positive implications, he said included increase in per capital income from the previous $1,555.

According to him, the increase signifies improved economic performance and standard of living.

He said, “This translates to an increase in Nigeria’s ranking as a preferred investment destination based on its perceived purchasing power. Also, the upward correction to the GDP will allow the government to achieve its medium-term objective of narrowing the federal budget deficit to 1.1 per cent of GDP in 2015.

He said the development had led to a drop in the country’s debt to the GDP ratio previously estimated at 20.7 per cent as of December 2012.

This, he said, would increase the government’s capacity to borrow due to the favourable debt ratio.

Nigeria is already a growing market for consumer goods firms such as Nestle, Heineken, Cadbury and Unilever, as well as construction material firms such as Lafarge and Dangote Cement, owned by Africa’s richest man, Alhaji Aliko Dangote.

Much increased interest would be in manufacturing and service companies, which could further help Africa’s top oil producer to move away from its over-reliance on crude oil.

It certainly won’t be the wonder cure for Nigeria’s economic ills. For one thing, being bigger means expansion will slow.

“The rebasing exercise will result in an increase in the country’s market size, but it is likely to lead to a slower rate of real GDP growth,” said Ecobank economist, Gaimin Nonyane, from its current rate of seven per cent for the past five years.

It will be mixed for Nigeria’s fiscal stance as well, improving the debt-to-GDP ratio, currently less than 20 per cent, but expose a weaker tax base, so debt investors won’t be moved.

“Fixed income investors will probably not pay much attention to the GDP dynamics,” said Standard Bank’s Samir Gadio.

Despite roaring growth in recent years and a bigger GDP, Nigeria will continue to trail South Africa in terms of basic infrastructure – power and roads – necessary to lift the bulk of its population of 170 million out of absolute poverty.

And its legendary dysfunction – abysmal telephone and Internet quality, clogged roads, ports and airports, obstructive police and reliance on diesel generators for most of its power – mean it won’t be replacing South Africa as a hub very soon.

“South Africa is going to stay the entry point for funds into Africa. I don’t think (it will move to) Nigeria,”

Rigaardt Maartens, a portfolio manager at PSG Online Securities, said.

 

 

[Punch]